exv10w1






Exhibit 10.1




AMENDED AND RESTATED




EMPLOYMENT AGREEMENT




     This Amended and Restated Employment Agreement (this “Agreement”) is made effective as of
August 11, 2008, by and between STERLING FINANCIAL CORPORATION (“Sterling”) and HAROLD B. GILKEY
(the “Executive”).



W I T N E S S E T H :




     WHEREAS, the Executive is Chairman of the Board, President and Chief Executive Officer of
Sterling, and Sterling desires to retain the Executive and the Executive is willing to continue to
serve in such capacities on the terms and conditions herein set forth; and



     WHEREAS, the parties desire to enter into this Agreement, which is intended to amend and
supersede an existing Employment Agreement, as amended (the “Prior Agreement”).



     NOW THEREFORE, in consideration of the mutual covenants herein contained, and other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:



     1. Employment. Sterling agrees to continue to employ the Executive, and the Executive
agrees to continue to be employed by Sterling, upon the terms and conditions hereinafter provided
until December 31, 2013 (the “Term”).



     2. Position and Duties. During the Term, Sterling agrees to employ the Executive to
serve as the Chairman of the Board, President and Chief Executive Officer of Sterling, and the
Executive will have such powers and duties as are commensurate with such position and as may be
conferred upon him by the Board of Directors of Sterling (the “Board”). During the Term, and
except for illness or incapacity and reasonable vacation periods as shall be consistent with
Sterling’s policies for other key executives, the Executive shall devote all of his business time,
attention, skill and efforts exclusively to the business and affairs of Sterling and its
subsidiaries; provided, however, that the Executive may serve on other boards as a director or
trustee if such service does not interfere with his ability to discharge his duties and
responsibilities to Sterling.



     3. Compensation. For all services rendered by the Executive in any capacity required
hereunder during the Term, including, without limitation, services as an executive officer,
director,



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or member of any committee of Sterling, or any subsidiary or division thereof, the Executive
shall be compensated as follows:




          (a) Base Salary. Sterling shall pay the Executive a fixed minimum salary of $650,000 per
annum (such amount or such higher annual amount as is paid from time to time pursuant to the terms
hereof being referred to as the “Base Salary”). The Base Salary shall be subject to such periodic
review (which shall occur at least annually) and such periodic increases as the Board shall deem
appropriate in accordance with Sterling’s customary procedures and practices regarding the salaries
of senior officers. The Base Salary shall be payable in accordance with the customary payroll
practices of Sterling, but in no event less frequently than monthly.




          (b) Bonus Awards. The Executive shall be entitled to receive an incentive bonus (the
“Incentive Bonus”) for each fiscal year during the Term. The Incentive Bonus shall be paid within
thirty days of the end of each fiscal year. The Incentive Bonus may be increased, upon the
recommendation of the Personnel Committee and the approval of the Board, depending, among other
factors, upon the attainment of performance goals set by the Board for Sterling.




          (c) Stock Retention Grant. In order to provide on-going motivation for employment, the
Company will provide Executive with a grant of 40,000 shares of restricted stock in each fiscal
year in which the Executive is employed by the Company. Each of these restricted stock grants will
vest two years following the date of grant. However, if the Executive is not re-elected to serve
on the Board, any unvested shares will vest immediately.




          (d) Additional Equity Grants. In addition to the foregoing, the Executive may be awarded, for
each fiscal year during the Term, equity grants under Sterling’s equity incentive plan(s) then in
effect subject to the terms and conditions of such plan(s).




          (e) Perquisites. Sterling also will furnish the Executive during each fiscal year of the
Term, without cost to him except any associated tax liability, with reasonable (i) payment for tax
preparation and financial planning; (ii) reimbursement for club membership fees or dues in
accordance with Sterling policy; (iii) payment for an annual physical examination of the Executive
by a physician selected by the Executive; and (iv) payment of an automobile allowance, it being
understood that the automobile allowance shall be primarily to further the business of Sterling.




          (f) Additional Benefits. Except as modified by this Agreement, the Executive shall be
entitled to participate in all compensation or employee benefit plans or programs, and to receive
all benefits, perquisites and emoluments, for which any salaried employees of Sterling are




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eligible under any plan or program now or hereafter established and maintained by Sterling for
senior officers, to the fullest extent permissible under the general terms and provisions of such
plans or programs and in accordance with the provisions thereof, including group hospitalization,
health, dental care, life or other insurance, tax-qualified pension, savings, thrift, 401(k) and
profit-sharing plans, termination pay programs, sick-leave plans, travel or accident insurance,
salary continuation plans, disability insurance, automobile allowance or automobile lease plans,
and executive contingent compensation plans, including, without limitation, stock option or
incentive plan(s) then in effect.




     4. Business Expenses. It is understood that for the Executive to successfully perform
his duties hereunder so as to produce the greatest economic return to Sterling, it is necessary for
the Executive to entertain persons having an existing or prospective business relationship with
Sterling and to attend seminars, conventions and continuing education programs. Sterling,
therefore, shall pay directly or reimburse the Executive for all reasonable travel, entertainment
or other expenses incurred by the Executive (and his spouse where there is a legitimate business
reason for his spouse to accompany him) in connection with the performance of his duties and
obligations under this Agreement, subject to the Executive’s presentation of appropriate vouchers
in accordance with such procedures as Sterling may from time to time establish for senior officers
and to preserve any deductions for Federal income taxation purposes to which Sterling may be
entitled.



     5. Effect of Termination of Employment Other Than in Connection with a Change
in Control.



          (a) Certain Terminations. In the event the Executive’s employment hereunder terminates due to
either Permanent Disability, the Executive’s death, a Without Cause Termination or a Constructive
Discharge, Sterling shall, as severance pay, continue, subject to the provisions of Section 7
below, to pay the Executive’s Base Salary as in effect at the time of such termination for a
three-year period beginning on the date of Termination of Employment (the “Severance Period”),
provided, that in the case of Permanent Disability, such payments shall be offset by any amounts
otherwise paid to the Executive under Sterling’s disability program generally available to other
employees. In addition, earned but unpaid Base Salary and Incentive Bonus amounts and amounts
(whether vested or not) held for the Executive’s account in Sterling’s deferred compensation plan
and supplemental executive retirement plan then in effect as of the date of Termination of
Employment
shall be fully vested and payable in full, pursuant to the payment terms of the applicable
plan




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document. The automobile allowance set forth in Section 3(d)(iv) shall continue through the
end of the Severance Period. All stock options and other incentive awards held by the Executive
shall become fully vested and exercisable during the Severance Period.




          (b) Other Terminations. In the event that the Executive’s employment hereunder terminates due
to a Termination for Cause, or the Executive voluntarily terminates employment with Sterling for
reasons other than a Constructive Discharge or Permanent Disability, earned but unpaid Base Salary
and Incentive Bonus amounts as of the date of Termination of Employment shall be payable in full.
However, no other payments shall be made, or benefits provided, by Sterling under this Agreement
except for stock options and other incentive awards held by the Executive pursuant to the terms of
the grant(s) thereof, vested benefits payable under the terms of the deferred compensation plan and
supplemental executive retirement plan then in effect, and any other benefits which the Executive
is entitled to receive under the terms of employee benefit programs maintained by Sterling or its
subsidiaries for its employees and under Section 18 below.




          (c) Payment in Accordance with §409A. In accordance with the regulations under Section 409A
(§409A) of the Internal Revenue Code of 1986, as amended (the “Code”), the payment of Base Salary
as severance and the provision of the automobile allowance to Executive, under Section 5(a) hereof,
shall be treated as a separation pay plan that does not provide for the deferral of compensation to
the extent of the exceptions provided under Treasury Regulations Sections (“Treas. Reg. §”)
1.409A-1(b)(9)(ii), (iii), (iv) and (v), which exceptions provide that such payments will not be
subject to §409A, including the six-month delay in payments to specified employees following a
separation from service, to the extent of such exceptions. All payments of Base Salary as
severance and the provision of the automobile allowance shall be paid in accordance with the same
schedule as when Executive was employed by Sterling.




          (d) Definitions. For purposes of this Agreement, the following terms have the following
meanings:




               (i) The term “Termination for Cause” means:



                    (A) the continued failure of Executive to substantially perform the Executive’s duties with
Sterling or one of its subsidiaries (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board, which specifically identifies the manner in which the
Board believes that the Executive has not substantially performed the Executive’s duties, or



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                    (B) the willful engaging by the Executive in illegal conduct that is materially and
demonstrably injurious to Sterling or any of its subsidiaries, or



                    (C) conviction of a felony involving fraud, dishonesty or moral turpitude, or a guilty or nolo
contendere plea by Executive with respect thereto, or



                    (D) violation of the provisions of Section 7 herein.



          For purposes of this provision, no act or failure to act on the part of Executive shall be
considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith and
without reasonable belief that the Executive’s action or omission was in the best interest of
Sterling or its subsidiaries. Any act or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or based upon the advice of counsel for Sterling shall be
conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the
best interests of Sterling and its subsidiaries. The cessation of employment of the Executive
shall not be deemed to be a Termination for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than
two-thirds of the entire membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in subparagraph (A), (B) or
(D) above, and specifying the particulars thereof in detail.




               (ii) The term “Constructive Discharge” means a termination of the Executive’s employment by
the Executive following the occurrence of any of the following events:



                    (A) Inferior Duties. The assignment of duties by Sterling to Executive, without his
express written consent, that (i) are inferior to Executive’s duties on the Effective Date in any
material respect, (ii) result in Executive having inconsequential authority or responsibility
compared to the authority or responsibility he had on the Effective Date, or (iii) result in
Executive reporting to or being supervised by someone other than the Board of Sterling or any
successor, as contemplated by Section 9 below; and (iv) any failure of the shareholders of Sterling
to
elect or re-elect the Executive as a member of the Board or to the offices of Chairman of the
Board, President and Chief Executive Officer of Sterling.



                    (B) Base Compensation Reduction. A material reduction by Sterling of Executive’s Base
Salary.



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                    (C) Relocation. Executive, without his written consent, is required by his employment
to perform a substantial part of his duties at one or more locations more than twenty-five miles
distant from Spokane, Washington.



                    (D) Breach. A material breach by Sterling of any provision of this Agreement.



          If an event constituting Constructive Discharge has occurred without the Executive’s consent,
the Executive’s termination for Constructive Discharge must occur within two years of the first
occurrence of such event. The Executive shall give notice to Sterling, in accordance with Section
10, of the existence of an event constituting Constructive Discharge within 90 days of the initial
occurrence of such event, and Sterling will have 60 days to cure or otherwise obtain Executive’s
express written consent to the occurrence or continuance of such event. If Executive’s employment
is terminated for Constructive Discharge, it will be treated as an involuntary separation from
service under §409A.




               (iii) The term “Without Cause Termination” means a termination of the Executive’s employment
by Sterling, for a reason other than Permanent Disability, retirement, expiration of the Term, or
Termination for Cause.



               (iv) The term “Permanent Disability” means a condition pursuant to which an Executive (i) is
unable to engage in any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically
determinable physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than twelve (12) months, receiving income
replacement benefits for a period of not less than three (3) months under an accident or health
policy covering employees of Employer.



     6. Effect of Termination of Employment in Connection with a Change in Control.



          (a) Definitions. For purposes of this Agreement, the following terms shall have the following
meanings:




               (i) A “Change in Control” shall be deemed to have occurred at such time as the occurrence of a
“change in ownership,” a “change in effective control” or a “change in the ownership of a
substantial portion of the assets” of a corporation, as determined in accordance with this
Section 6(a)(i).



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                    (A) A “change in ownership” of Sterling shall occur on the date on which any one person, or
more than one person acting as a group, acquires ownership of stock of Sterling that, together with
stock held by such person or group, constitutes more than 50% of the total fair market value or
total voting power of the stock of Sterling, as determined in accordance with Treas. Reg.
§1.409A-3(i)(5)(v). If a person or group is considered either to own more than 50% of the total
fair market value or total voting power of the stock of Sterling, or to have effective control of
such corporation within the meaning of part (B) of this Section, and such person or group acquires
additional stock of such corporation, the acquisition of additional stock by such person or group
shall not be considered to cause a “change in the ownership” of Sterling.



                    (B) A “change in effective control” of Sterling shall occur only on either of the following
dates:



                         (1) The date on which any one person, or more than one person acting as a group, acquires (or
has acquired during the 12-month period ending on the date of the most recent acquisition by such
person or persons) ownership of stock of Sterling possessing 30% or more of the total voting power
of the stock of Sterling, as determined in accordance with Treas. Reg. §1.409A-3(i)(5)(vi). If a
person or group is considered to possess 30% or more of the total voting power of the stock of
Sterling, and such person or group acquires additional stock of Sterling, the acquisition of
additional stock by such person or group shall not be considered to cause a “change in effective
control” of Sterling, or



                         (2) The date on which a majority of the members of Sterling’s Board is replaced during any
12-month period by directors whose appointment or election is not endorsed by a majority of the
members of the Board before the date of the appointment or election, as determined in accordance
with Treas. Reg. §1.409A-3(i)(5)(vi).



                         (3) A “change in the ownership of a substantial portion of the assets” of Sterling shall occur
on the date on which any one person, or more than one person acting as a group, acquires (or has
acquired during the 12-month period ending on the date of the most recent acquisition by such
person or persons) assets from Sterling that have a total gross fair market value equal to more
than 40% of the total gross fair market value of all for the assets of Sterling immediately before
such acquisition or acquisitions, as determined in accordance with Treas. Reg.
§1.409A-3(i)(5)(vii). A transfer of assets shall not be treated as a “change in the ownership of a
substantial portion of the assets” when such transfer is made to an entity that is



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controlled by
the shareholders of the transferor corporation, as determined in accordance with Treas. Reg.
§1.409A-3(i)(5)(vii)(B).




               (ii) “Separation Period” means a three-year period beginning on the date of Termination of
Employment.



               (iii) “Termination of Employment” shall mean the termination of the Executive’s actual
employment with Sterling, which constitutes a separation from service as defined under §409A.



               (iv) “Termination Upon a Change in Control” shall mean a Termination of Employment upon or
within twenty-four months after a Change in Control by Sterling, or its successors, without Cause,
or by Executive due to a Constructive Discharge, as described under Section 5(d)(ii) hereof.



          (b) Payments for Termination Upon a Change in Control. Within twenty days of the Executive’s
Termination Upon a Change in Control, Sterling shall pay to the Executive in a single payment in
cash and/or provide to the Executive, as applicable, the following:




               (i) the Executive’s earned but unpaid Base Salary and Incentive Bonus amounts and amounts
(whether vested or not) held for the Executive’s account in the deferred compensation plan and the
supplemental executive retirement plan then in effect as of the date of Termination of Employment;



               (ii) the benefits, if any, to which the Executive is entitled as a former employee under the
employee benefit programs and compensation plans and programs maintained for the benefit of
Sterling’s officers and employees;



               (iii) continued automobile allowance as provided in Section 3(d)(iv) throughout the Separation
Period;



               (iv) an amount equal to the Base Salary and Incentive Bonus amounts the Executive would have
earned if the Executive had continued working for Sterling during the Separation Period, at the
highest annual rate of Base Salary, and the highest annual Incentive Bonus achieved during the
Executive’s period of actual employment with Sterling; and



               (v) an amount equal to Sterling’s contributions to which the Executive would have been
entitled under Sterling’s 401(k) Plan if the Executive had continued working for Sterling during
the Separation Period at the highest annual rate of Base Salary achieved during the



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Executive’s
period of actual employment with Sterling, and the Executive had made the maximum amount of
employee contributions as are permitted under such plans.




          (c) Options and Other Incentive Awards. All stock options and other incentive awards held by
the Executive shall become fully vested and exercisable during the Separation Period.




          (d) Adjustment for Taxes. In the event that either Sterling’s independent public accountants
or the Internal Revenue Service determines that any payment, coverage, benefit or benefit
acceleration provided to Executive, whether specifically provided for in this Agreement or
otherwise, is subject to the excise tax imposed by Section 4999 (or any successor provision)
(“Section 4999”) of the Code, Sterling, within 30 days thereafter, shall pay to Executive, in
addition to any other payment, coverage or benefit due and owing hereunder, an amount determined by
multiplying the rate of excise tax then imposed by Section 4999 by the amount of the “excess
parachute payment” (as defined in Section 280G of the Code) received by Executive (determined
without regard to any payments made to the Executive pursuant to this paragraph) and dividing the
product so obtained by the amount obtained by subtracting the aggregate local, state and Federal
income tax rate applicable to the receipt by Executive of the “excess parachute payment” (taking
into account the deductibility for Federal income tax purposes of the payment of state and local
income taxes thereon) from the amount obtained by subtracting from 1.00 the rate of excise tax then
imposed by Section 4999 of the Code, it being Sterling’s intention that the Executive’s net after
tax position be identical to that which would have obtained had Sections 280G and 4999 not been
part of the Code.




          (e) In the event that, on or after the occurrence of a Change in Control, Sterling fails to
make any payment or provide any coverage to Executive arising out of or relating in any way
to this Agreement or to the Executive’s employment by Sterling (collectively, “Employment
Rights”), then Sterling shall pay to the Executive and reimburse the Executive for the Executive’s
full costs (including, without limitation, the fees and expenses of the Executive’s attorneys and
court and related costs) of enforcing the Executive’s Employment Rights. In addition, if the
enforceability of this Agreement or the payment of any benefit to the Executive hereunder is
disputed by Sterling on or after the occurrence of a Change in Control, then the Term of this
Agreement shall be extended for the period of the dispute in the event of a final judicial
determination that the Executive is





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entitled to at least fifty percent (in dollar amount) of the
benefits that Executive claimed from, and that were disputed by, Sterling.




     7. Other Duties of Executive During and After Term.



          (a) Confidential Information. The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, or customers of Sterling or any of its subsidiaries
(any or all of such entities being hereinafter referred to as the “Business”), as such information
may exist from time to time, other than information that Sterling has previously made publicly
available or which is in the public domain, is confidential information and is a unique and
valuable asset of the Business, access to and knowledge of which are essential to the performance
of the Executive’s duties under this Agreement. The Executive shall not, through the end of the
Term, except to the extent reasonably necessary in the performance of his duties under this
Agreement, divulge to any person, firm, association, corporation, or governmental agency, any
information concerning the affairs, business, clients, or customers of the Business (except such
information as is required by law to be divulged to a government agency or pursuant to lawful
process), or make use of any such information for his own purposes or for the benefit of any
person, firm, association or corporation (except the Business) and shall use his reasonable best
efforts to prevent the disclosure of any such information by others. All records, memoranda,
letters, books, papers, reports, accountings, experience or other data, and other records and
documents relating to the Business, whether made by the Executive or otherwise coming into his
possession, are confidential information and are, shall be, and shall remain the property of the
Business. No copies thereof shall be made which are not retained by the Business, and the
Executive agrees, on termination of his employment or on demand of Sterling, to deliver the same to
Sterling.




          (b) Non-Compete. For a period of two years following Executive’s Termination of Employment
(the “Non-Compete Period”), the Executive shall not, without express prior written approval of
Sterling’s Board, directly or indirectly own or hold any proprietary interest in, or be employed by
or receive remuneration from, any corporation, partnership, sole proprietorship or other entity
engaged in competition with Sterling or any of its subsidiaries (a “Competitor”), other than
severance-type or retirement-type benefits from entities constituting prior employers of the
Executive. During the Non-Compete Period, the Executive also agrees that he will not solicit for
the account of any Competitor, any customer or client of Sterling or its subsidiaries. The
Executive also agrees not to act on behalf of any Competitor to interfere with the relationship
between Sterling or





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its subsidiaries and their employees during the Non-Compete Period. In
addition, if the Executive obtains non-competitive employment during the Non-Compete Period, for
such period the Executive agrees not to solicit employees of Sterling or its subsidiaries for new
employment without the prior written consent of Sterling. For purposes of this section, (i) the
term “proprietary interest” means legal or equitable ownership, whether through stockholdings or
otherwise, of greater than a 20% equity interest in a business, firm or entity, and (ii) an entity
shall be considered to be “engaged in competition” if such entity is, or is a holding company for,
a bank, savings and loan association or other financial services business engaged in a business
that competes with Sterling in the States of Washington, Oregon, Idaho, Montana, or California.
Executive acknowledges the receipt and sufficiency of specific consideration for the agreements in
this Section 7.




          (c) Remedies. Sterling’s obligation to make payments, deliver shares of stock or provide for
any benefits under this Agreement (except to the extent vested or exercisable prior to Executive’s
Termination of Employment) shall cease upon a violation of the preceding provisions of this
section. Executive acknowledges that there would be no adequate remedy at law or in damages to
compensate Sterling for any violation of this Section 7, and agrees that Sterling shall be entitled
to injunctive relief requiring specific performance by Executive of this Section 7 without the
necessity of proving actual damages or the posting of a bond, and Executive consents to the entry
thereof.




          (d) Survival. The provisions of this Section 7 shall: (a) survive the termination of this
Agreement, and continue throughout the duration of the Executive’s employment with Sterling, except
as amended or modified by written agreement of the parties; and (b) survive the Executive’s
Termination of Employment with Sterling. The running of the Non-Compete Period provided under
Section 7(b) shall be tolled between the time any controversy with respect to this Section 7
is filed with a court or arbitrator and the decision of the judge, jury or arbitrator on said
controversy.




          (e) Modification of Terms. If any restriction in this Section 7 is finally adjudicated by a
court of competent jurisdiction to exceed the time, geographic, service or other limitations
permitted by applicable law in any jurisdiction, such restriction may be modified and narrowed by a
court to the maximum time, geographic, service or other limitations permitted by applicable law so
as to preserve and protect Sterling’s legitimate business interest, without negating or impairing
any other restrictions or undertaking set forth in the Agreement.



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          (f) Application. The provisions of Section 7(b) shall be inapplicable if the Executive’s
Termination of Employment is due to: a Permanent Disability; a Without Cause Termination; a
Constructive Discharge; or a Termination Upon a Change in Control.




     8. Withholding Taxes. Sterling may directly or indirectly withhold from any payments
made under this Agreement all Federal, state, city or other taxes as shall be required pursuant to
any law or governmental regulation or ruling.



     9. Consolidation, Merger, or Sale of Assets. Nothing in this Agreement shall preclude
Sterling from consolidating or merging into or with, or transferring all or substantially all of
its assets to, another corporation that assumes this Agreement and all obligations and undertakings
of Sterling hereunder. Upon such a consolidation, merger or transfer of assets, the term
“Sterling” as used herein shall mean such other corporation and this Agreement shall continue in
full force and effect.



     10. Notices. All notices, requests, demands and other communications required or
permitted hereunder shall be given in writing and shall be deemed to have been duly given if
delivered or mailed, postage prepaid, by same day or overnight mail as follows:



	 	 	 	 	 
	 

	 	(a)
	 	To Sterling:
	 
	 	 	 	 
	 

	 	 	 	111 North Wall Street
	 

	 	 	 	Spokane, WA 99201
	 
	 	 	 	 
	 

	 	 	 	Attention: Chief Financial Officer
	 

	 	 	 	With a copy to:
	 
	 	 	 	 
	 

	 	 	 	Witherspoon, Kelley, Davenport & Toole, P.S.
	 

	 	 	 	422 West Riverside, Suite 1100
	 

	 	 	 	Spokane, WA 99201-0390
	 
	 	 	 	 
	 

	 	 	 	Attention: Andrew J. Schultheis, Esq.
	 
	 	 	 	 
	 

	 	(b)
	 	To the Executive:
	 
	 	 	 	 
	 

	 	 	 	At his regular office and to his primary residence





or to such other address as either party shall from time-to-time specify in writing to the other.




     11. No Attachment. Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge or hypothecation, or to execution, attachment, levy or similar process, or
assignment



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by operation of law, and any attempt, voluntary or involuntary, to effect any such
action shall be null, void and of no effect; provided, however, that nothing in this Section 11
shall preclude the assumption of such rights by executors, administrators or other legal
representatives of the Executive or his estate and their assigning any rights hereunder to the
person or persons entitled thereto.




     12. No Mitigation. The Executive shall not be required to mitigate the amount of any
payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Agreement be reduced by any
compensation earned by other employment or otherwise, except as provided herein.



     13. Source of Payment. All payments provided for under this Agreement shall be paid
in cash from the general funds of Sterling. To the extent that any person acquires a right to
receive payments from Sterling hereunder, such right, without prejudice to rights which employees
may have, shall be no greater than the right of an unsecured creditor of Sterling.



     14. Further Action. Sterling shall perform all acts and execute all documents as may
be reasonably necessary to effect performance of this Agreement by Sterling. In the event
Sterling’s Deferred Compensation Plan, the 1992 Stock Option Plan, the 1998 Long-Term Incentive
Plan, the 2001 Long-Term Incentive Plan, the 2003 Long-Term Incentive Plan, the 2007 Long-Term
Incentive Plan, the Sterling Savings Bank Deferred Compensation Plan, and the Supplemental
Executive Retirement Plan, or plans which are substantially similar to such plans are not
maintained, Sterling shall provide the Executive with compensation which is substantially similar
in financial effect to the compensation which would otherwise have been provided through such
plans. References herein to deferred compensation, stock option or incentive plan(s) and any other
benefit plans shall be deemed
to include all successor plans. Nothing in this Agreement shall be deemed to be a
modification of Sterling’s stock option or incentive plans.



     15. Severability. If any provision of this Agreement or application thereof to anyone
or under any circumstances is finally adjudicated by a court of competent jurisdiction to be
invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect
any other provision or application and shall not invalidate or render unenforceable such provision
or application in any other jurisdiction.



     16. Contents of Agreement. This Agreement supersedes all prior agreements and sets
forth the entire understanding among the parties hereto with respect to the subject matter hereof
and



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cannot be changed, modified, extended or terminated except upon written amendment approved by
the parties hereto.




     17. Governing Law. The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Washington, and the Executive consents to
the jurisdiction of the state and federal courts of Washington in any dispute arising under this
Agreement.



     18. Survival of Benefits. If the Term expires and no employment agreement between
Sterling and Executive is in effect, but Executive’s employment relationship with Sterling
continues, any section of this Agreement that provides a benefit to the Executive and that does not
expressly provide for its termination upon the expiration of the Term shall survive the expiration
of the Term, and the obligation to provide benefits to the Executive as set forth in such Section
shall remain binding upon Sterling until such time as the Executive’s employment relationship with
Sterling is terminated and the benefits provided under such Section are paid in full to the
Executive or until such time as a new employment agreement between Sterling and Executive is in
effect. Anything to the contrary herein notwithstanding, following any Termination of Employment,
including retirement, but not following a Termination for Cause, for the later of Executive’s and
his spouse’s lifetime, Sterling shall continue to provide the perquisites set forth in Section
3(e)(i) and (ii), as well as medical, dental and travel accident insurance coverages for the
Executive and his spouse to substantially the same extent as if the Executive had continued in
Sterling’s employ, subject to the terms and conditions described in this Section 18.



          (a) For any reimbursements or in-kind benefits provided by Sterling after Executive’s
Termination of Employment, the following conditions apply:




               (i) The benefit plan or reimbursement arrangement must provide an objectively determinable
non-discretionary definition of expenses eligible for reimbursement or the in-kind benefits to be
provided.



               (ii) The benefit or expense eligible for reimbursement or in-kind benefit during a particular
calendar year may not affect the expenses eligible for reimbursement or in-kind benefit provided in
any other calendar year.



               (iii) The reimbursement of an eligible expense must be made on or before the last day of the
calendar year following the calendar year in which the expense was incurred.



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               (iv) No reimbursement or in-kind benefit is subject to liquidation or exchange for another
benefit.



               (v) The amount of the dues and fees for Executive’s club memberships paid in each calendar
year shall equal only the amount actually charged by the respective club or organization during the
period.



               (vi) The amount of reimbursement for tax preparation and financial planning related expenses
shall be subject to an annual cap of $20,000 and shall be limited to expenses incurred in seeking
advice and assistance from professionals licensed in the tax, accounting, legal or financial
service industries.



               (vii) The amount of reimbursement for an annual physical examination of Executive by a
physician selected by Executive shall be limited to the actual charges incurred in conjunction with
such physical examination to the extent not otherwise reimbursed or paid by insurance or Medicare.



               (viii) The provision of medical, dental and travel accident insurance coverage shall be offset
by the receipt of any alternative benefits under Medicare or similar programs.



          (b) In accordance with the regulations under §409A, the provision of benefits and payment of
expenses during the first two calendar years following the calendar year in which Executive’s
Termination of Employment occurs (whether voluntary or otherwise), which expenses or benefits must
be paid to Executive prior to the end of the third calendar year following the calendar year in
which the Termination of Employment occurs, is an exception from the definition of deferred
compensation under §409A, and therefore is not subject to the rules and restrictions under
§409A, including, but not limited to, the six-month delay in payment of benefits to specified
employees. The provision of benefits and payment of expenses during this initial period of time is
intended to comply with such exception from the definition of deferred compensation in the
regulations under §409A.




          (c) Notwithstanding Sections 18(a) and (b) above, with respect to each welfare benefit
provided after Termination of Employment that constitutes a health reimbursement arrangement
satisfying the requirements of Section 105 and Section 106 of the Code such that the benefits or
reimbursements provided under such arrangement are not includable in Executive’s




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income, the terms
and conditions of Sections 18(a) and (b) shall not apply to such benefits or reimbursements due to
the fact that such health reimbursement arrangement is exempt from §409A.




     19. Representations. The Executive hereby represents and warrants that he has the
legal capacity to execute and perform this Agreement, that it is a valid and binding agreement
against him according to its terms, and that its execution and performance by him does not and will
not violate the terms of any existing agreement or understanding to which the Executive is a party.
In addition, the Executive represents and warrants that he knows of no reason why he is not
physically capable of performing his obligations under this Agreement in accordance with its terms.



     20. Miscellaneous. All section headings are for convenience only. This Agreement may
be executed in any number of counterparts, each of which when executed shall be deemed to be an
original and all of which together shall be deemed to be one and the same instrument. It shall not
be necessary in making proof of this Agreement or any counterpart hereof to produce or account for
any of the other counterparts.



     21. Compliance with §409A. This Agreement is intended to constitute an enforceable
contract for the payment of compensation, severance and certain other benefits. The Agreement is
not intended to constitute a “nonqualified deferred compensation plan” within the meaning of §409A.
Notwithstanding the foregoing, in the event this Agreement and/or any benefit paid to the Executive
hereunder is deemed to be subject to §409A, this Agreement shall be interpreted and, as reasonably
necessary in the discretion of the Board, may be amended to bring this Agreement and/or any such
benefit into compliance with §409A, without reducing the amounts of any benefits due to the
Executive hereunder.



[SIGNATURE PAGE FOLLOWS]




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     IN WITNESS WHEREOF, and intending to be legally bound, Sterling has caused this Agreement to
be executed by its duly authorized representatives and the Executive has signed this Agreement, all
as of the first date above written.



	 	 	 	 	 
	 	STERLING FINANCIAL CORPORATION

 	 
	 	BY:  	/s/ Robert B. Larrabee
 	 
	 	 	ROBERT B. LARRABEE 	 
	 	 	Chairman, Personnel Committee 	 
	 



	 	 	 	 	 
	ATTEST:



STERLING FINANCIAL CORPORATION

 	 
	BY:  	/s/ Daniel G. Byrne
 	 
	 	DANIEL G. BYRNE 	 
	 	Executive Vice President, Finance and


Chief Financial Officer 	 
	 



	 	 	 	 	 
	 	 	 
	 	  	/s/ Harold B. Gilkey
 	 
	 	 	HAROLD B. GILKEY 	 
	 	 	 	 
	 



[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]





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